profile picture

Have equity in your home? Want a lower payment? An appraisal from Crest Appraisal Services can help you get rid of your PMI.

When getting a mortgage, a 20% down payment is usually the standard. The lender's liability is often only the remainder between the home value and the amount due on the loan, so the 20% provides a nice buffer against the expenses of foreclosure, selling the home again, and natural value variations on the chance that a purchaser defaults.

During the recent mortgage upturn of the mid 2000s, it was widespread to see lenders requiring down payments of 10, 5 or often 0 percent. A lender is able to manage the added risk of the small down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower is unable to pay on the loan and the value of the property is less than what the borrower still owes on the loan.

Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and often isn't even tax deductible, PMI can be pricey to a borrower. It's advantageous for the lender because they collect the money, and they get paid if the borrower defaults, opposite from a piggyback loan where the lender consumes all the deficits.

Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.

How can buyers avoid paying PMI?

The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. The law pledges that, at the request of the home owner, the PMI must be abandoned when the principal amount reaches just 80 percent. So, wise home owners can get off the hook sooner than expected.

Since it can take many years to reach the point where the principal is just 20% of the original amount borrowed, it's necessary to know how your home has appreciated in value. After all, any appreciation you've acquired over the years counts towards removing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Even when nationwide trends predict plunging home values, understand that real estate is local. Your neighborhood might not be adhering to the national trends and/or your home might have secured equity before things calmed down.

The difficult thing for most homeowners to know is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can certainly help. It's an appraiser's job to know the market dynamics of their area. At Crest Appraisal Services, we know when property values have risen or declined. We're experts at analyzing value trends in Seattle, King County and surrounding areas. When faced with data from an appraiser, the mortgage company will most often do away with the PMI with little effort. At which time, the homeowner can retain the savings from that point on.

Want to learn more about PMI and the Homeowners Protection Act? Click this link:
Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year